Month: March 2019

This is the seventh post in our quarterly update series. In each post, we pick four stocks from our watchlist and share the latest updates on these businesses. These are not buy recommendations but we find these businesses interesting and we may build position (or buy more of those that are already in our portfolio) in them in future under these two conditions —

Their business continues to do well and,

They are available at valuation which we find reasonable with sufficient margin of safety.

So my advice is: take advice with a grain of salt. Especially at the early stages, where it’s more art than science. Get comfortable operating with a lot of variability and learn to trust your instincts.

A basic tenet of long-term investing is to look for high quality listed businesses. This essentially implies 1) they earn returns above cost of capital (reflected by return on capital employed), and 2) generate strong free cash i.e. they don’t require a lot of capital (fixed assets and/or working capital) to grow revenues and profitability. Those retained earnings can then be utilised either to acquire other companies in same line of business or diversify. Alternatively, excess capital could be returned to shareholders via dividends or buyback.

But have you ever wondered why would a promoter of such a business list his company as it involves diluting a significant chunk of his ownership to minority investors?

India is on the threshold of major reforms and is poised to become the third-largest economy of the world by 2030.

As an investor, it would be a colossal mistake to not have a bird’s eye view of where the Indian manufacturing industry stands, and where it’s headed.

India’s manufacturing sector has evolved through several phases – from the initial industrialisation and the license raj during the British rule to liberalisation and the current phase of global competitiveness since the last few decades.

Manu Rastogi and Karan Patel from the SSIAS team have compiled a comprehensive report on this theme.

This is the sixth post in our quarterly update series. In each post, we pick four stocks from our watchlist and share the latest updates on these businesses. These are not buy recommendations but we find these businesses interesting and we may build position (or buy more of those that are already in our portfolio) in them in future under these two conditions —

Their business continues to do well and,

They are available at valuation which we find reasonable with sufficient margin of safety.

It started as an unbound Walmart, an algorithm for running an unbound search for global optima in the world of physical products. It became a platform for adapting that algorithm to any opportunity for customer-centric value creation that it encountered. If it devises a way to keep its incentive structures intact as it exposes itself through its ever-expanding external interfaces, it – or its various split-off subsidiaries – will dominate the economy for a generation. And if not, it’ll be just another company that seemed unstoppable until it wasn’t.

The media environment is like a crystal ball. By observing it, we can predict the future. Commerce will become quirkier, education will be overhauled, and politicians will increasingly look like anti-establishment celebrities. Industrial, Mass Media structures are obsolete and unfit for our new environment. Just as we cannot pick up a palm tree in Los Angeles and expect it to grow on the North Pole, systems from the Mass Media Age will not work in the Internet Age.

Average age of these 60 companies is about 60 years. Moreover, 18 businesses have been in existence from the pre-independence era. The oldest of the lot is United Spirits (McDowell’s) which is 193 years old, followed by United Breweries (Kingfisher) which is 162 years old. This shows that it takes an enormous amount of time for any business to scale up and attain leadership and that there is simply no shortcut. There are only three businesses that came into existence in the 21st century – MCX (2002), IEX (2006) and Interglobe Aviation (2006).

This is the fifth post in our quarterly update series. In each post, we pick four stocks from our watchlist and share the latest updates on these businesses. These are not buy recommendations but we find these businesses interesting and we may build position (or buy more of those that are already in our portfolio) in them in future under these two conditions —

Their business continues to do well and,

They are available at valuation which we find reasonable with sufficient margin of safety.

Most of us in our late 20s or early 30s have this universal feeling, “I will work until I attain the age of 40, save enough money by that time and then retire rich.”

Seems like a reasonably simple plan especially for those who start on this plan early in their careers, right?

I disagree.

I think this “work till 40, save aggressively and retire early” is a flawed proposition. Please allow me to explain.

When we start earning more, we also get used to a better style of living. Not only that, by having a lavish lifestyle, we continue to be at the same happiness level. Our mind gets so adapted to the new comforts and luxuries that we cannot live without them. Behavioural economists often refer to this effect as the hedonic treadmill. Riding the income ladder makes us vulnerable to the inflated lifestyle which prevents us from breaking free.

A few days back I was chatting with my friend Anshul and he asked me something interesting.

“Ankit, many stocks have corrected in past 6-8 months. Some reports say that average fall across 3,000 traded stocks is more than 50% from their 2018 Highs. Which has resulted in quite a few popular names which used to be market darlings being available at relatively cheaper valuations. For example, Eicher Motors is down by 40% from its all time high. Rain Industries — the most talked about 10-bagger of 2018 — has fallen by 75% in last one year.” Anshul said.

“Right, Anshul.” I nodded.

However, the Nifty hasn’t corrected that much, added Anshul, “It’s is barely down 10% from its lifetime high. Which means several of the blue chip companies are still doing well in terms of returns to the shareholders in past few years. And most of these large caps have been around for a long time and they have proven and profitable business models. For example, companies like HDFC Bank, Asian Paints, TCS, etc.”

“Yes. So what’s your point?” I asked him.

“For many of these names, there’s little doubt about the quality of the business or future potential, then what stops you from buying them at this stage?” Anshul asked.

Below we have four more companies that we’re tracking closely. We have made notes from their quarterly updates and the analyst conference calls.

The Cabinet Committee of Economic Affairs (CCEA) has approved a Rs 10,000 crore package for the second phase of Faster Adoption & Manufacturing of Electric (and hybrid) vehicles (FAME) scheme on February 28. “Starting from 1st April 2019, the second package will continue for three years till 31st March, 2022,” Union Finance Minister Arun Jaitley said.

FAME scheme was started in 2015 to incentivize the manufacture of electric vehicles. Incentives up to Rs 22,000 were available for two-wheelers, Rs 61,000 for three-wheelers and Rs 1,87,000 for four-wheelers were provided. The scheme was initially implemented for one year, which was later given three extensions. This is a positive news for two companies in our watchlist.

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Please click on the read more button for more details on each stock.

Thomas Cook India

Thomas Cook is one of India’s oldest companies which was established in 1881. It is an integrated travel and travel related financial services company. They provide a wide range of services from packaged tours and forex services to visa support and travel insurance.